Indiana raised $3.8 billion for road improvements by leasing its toll road to a private company. New Jersey has been considering privatizing the New Jersey Turnpike and raising tens of billions to erase state debts.
Here in Hampton Roads, the idea of privatizing some of our bridges and tunnels has arisen as a means of solving the transportation funding dilemma. We need to think carefully before taking this serious step.
Let's look at what Indiana did. A private consortium of companies leased the Indiana Toll Road for 75 years. They will maintain the road, operate rest areas, plow snow, collect tolls, and do everything else to operate the highway. In exchange, they paid the state $3.8 billion at the time they took control of operations. Indiana is using the money to improve roads all over the state, making up for a long-underfunded transportation budget.
Privatization was very attractive to Indiana's governor, Mitch Daniels, because tolls were very low and the state government had been unwilling to raise them for 20 years. By giving the private operator the power to raise tolls, the state shifted responsibility for setting tolls to the private sector, so that revenue to pay for roads would rise and politicians would not be blamed.
At first look, it appears to be a great deal for the state. But there are drawbacks. Beginning in 2010, the operator will be allowed to raise tolls, and will continue to raise tolls in the future, but no faster than their lease allows.
It is important to remember that the $3.8 billion Indiana got did not come from the tooth fairy. It will be paid by drivers for 75 years. Indiana drivers will be paying for road improvements being made now for decades after they are decayed and falling apart.
Discussions of privatization sometimes confuse the benefits of tolls and privatization.
Tolls could be introduced to roads, bridges and tunnels in Hampton Roads with or without privatization. Those tolls could help to pay for the local transportation infrastructure's maintenance and improvement.
An Indiana-style privatization could provide a quick infusion of billions of dollars for transportation –– in effect by borrowing against future tolls.
But we could get the same infusion of cash without privatizing by issuing bonds against future toll revenue. And the commonwealth of Virginia can borrow more cheaply than a private company. Which leaves us with the question: Why privatize?
The chief advantage of privatization is that it offers politicians a way to raise tolls without being seen doing it. The lease to the private operator would specify how fast tolls could rise. Tolls would rise over time in accordance with the lease, and politicians could complain each time they went up. Politicians who voted for the lease agreement would retire or conveniently forget that they supported it years before.
Privatization would probably mean higher tolls, and more money to pay for highway maintenance and improvements, but less accountability to voters.
[[jbgilm, John Gilmour]] is a professor of government and public policy at the College of William and Mary in Williamsburg.